Featured News 2014 Subprime Mortgages Making a Comeback

Subprime Mortgages Making a Comeback

According to CNN, borrowers with bad credit now have the ability to purchase a home. A small handful of lenders are starting to offer subprime loans for those looking to purchase a house. Subprime mortgages are reserved for borrowers who pose a higher credit risk. Normally, people with credit scores below 640 are still able to obtain a mortgage if they opt for a subprime option. The loans are often more costly because the borrowers are high risk clients.

Lenders are charging interest rates from 8% to 10% and are requiring borrowers to make down payments that cover between 25% to 35% of the price of the home. For some borrowers with poor credit, the premium price is worth it. Many individuals are trying to repair their credit with consistent payments, and subprime loans are a way to accomplish this goal. Banks say that many of their subprime mortgage customers are young people who haven't been able to build credit, or first-time homebuyers that don't have any credit to prove that they are reliable. In other cases, the banks lend these subprime mortgages to homebuyers that were harmed in the housing bust several years back.

Freddie Mac and Fannie Mae won't back loans that are issued to subprime borrowers, so many individuals are willing to pay the higher price and purchase their home, rather than wait and rent. The Federal Housing Administration supports low credit score borrowers but it has hiked fees and premiums for these borrowers as a precaution. The Consumer Financial Protection Bureau requires strong consumer protections, such as making sure that the loans don't carry interests rates that increase after default, and making sure that the lenders receive homeownership counseling from a representative of the U.S. Department of Housing and Urban Development.

Many smaller banks and lending companies are dabbling in the subprime loan market. Also, Wells Fargo recently announced that they will approve applicants for mortgages if they have a credit score between 600 and 640. These poor credit borrowers can receive Federal Housing Administration (FHA) loans. If you are considering a subprime loan, don't hesitate to talk with a real estate attorney first.

If you are not cautious, a subprime loan could turn into a dangerous financial trap. Subprime loans often come with astronomical interests and additional fees. Some individuals may be unable to afford these costs, and committed to a subprime loan can lead to a financial crisis. You will want to take a very close look at any subprime mortgages that you are considering and see how you could afford those payments. Contact a local real estate attorney to learn more about subprime mortgages and how this could affect your ability to remain in your home.

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